4 Strategies SaaS Startups Must Follow to Avoid Failure

By May 4, 2016Blog

You’ve heard the statistic that 90% of all startups will fail within the first year, but do you know why? Why do so many SaaS startups find themselves unable to keep their heads above water? In most cases, it’s because they haven’t followed some basic strategies and tactics necessary to not only succeed, but to thrive in the SaaS atmosphere. In trying to manage their business and keep up with the market, they dive right into selling and let these simple concepts get lost in the noise. In researching best practices for building our own SaaS company, we examined what experts in the field recommend that every SaaS startup employ to achieve success and longevity. We discovered four critical steps to making sure your company doesn’t end up a statistic.

Know Your Ideal Customer

Knowing what types of companies and people you want to do business with is critical in building and marketing your SaaS product. For your offering to provide optimal value, you must understand what resonates with your customers. For example, product managers care about development and technical issues while customer success managers care more about breakdowns in the user experience. It’s absolutely necessary to know who is using your service and what matters to them in order to provide useful features, as well as knowing what your pricing strategy will look like, how your Customer Success framework will be implemented, and how your Customer Acquisition teams will engage prospects.

“Your Ideal Customer Profile is a living, breathing
definition that you’ll come back to–and modify–often.”

There’s certainly no universal definition of an Ideal Customer. Your Ideal Customer is specific to the problem you’re solving, your goals, and your capabilities. So how do you know what your ideal customer looks like? Lincoln Murphy, Growth Strategist at Sixteen Ventures, recommends completing an Ideal Customer Profile (ICP) to find out. This document should dictate everything from the features and functionality of your service to the words you use and the emotion you invoke in your marketing. This document helps clarify and crystallize who your best (potentially profitable) prospects are based on a several factors: things like willingness to solve the problem, success potential, acquisition efficiency, expansion potential, and advocacy potential.

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Develop an Appropriate Pricing Structure

Setting the price point for your SaaS offering lets customers know what your service is worth and the value they can expect from using it. Murphy points out that “your pricing strategy will help determine–among other things–your market position, whether or not your target customers can buy from you, and whether or not you can provide the level of service required by those customers.”

Once you know your ideal customers, pricing becomes a little easier, but there are a few other inputs that Murphy suggests can help determine your pricing strategy, including internal factors like the quality vs quantity of your ideal customers and your market position, and external factors like the level of support service you’ll need to provide your customers and their estimated Customer Lifetime.

After you’ve considered each of these inputs, decide on an initial price and begin testing. However, understand that only paying customers can provide real feedback on your price point. Lincoln Murphy recommends–if you can–going as far as offering unlimited access to your entire service (all features and functionality for unlimited users within their company) for a very specific cohort of early customers in exchange for a fee. Then, asking for feedback on pricing from those customers. “Every pricing plan you offer should have a story behind it; a use case, a type of customer, and a Desired Outcome.” Once you can see how real, paying customers are using your product and the value they expect to receive from it, you can begin price segmentation and mapping out your price tiers.

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Onboard New Customers Like a Pro

The user experience of your service is paramount. From their first interaction with your product, customers need to see how they can derive optimal value, which means it’s critical to keep up the momentum once the initial sales deal is closed. Nello Franco, SVP, Customer Success at Talend, calls this your first “quick win.” You need to get your customer to realize value from your SaaS as quickly as possible, whether it’s their post-sale initial use or during the Free Trial.

Knowing your audience is key here. If your customers are savvy developers, you may be able to take a more hands-off approach. If your customers are non-technical users, you may want to consider more hand-holding. You must also be able to measure indicators of churn and receive insights on when to initiate outreach to customers who may be struggling to use your product so you know how to react.

In both the high and low touch models, it’s critical to measure early indicators
of user adoption and determine what course corrections need to be applied.”

Initially, manual onboarding with very high touch is important to both the customer and to the success of your SaaS startup. Most SaaS companies, over time, strive to automate onboarding for greater efficiency. However automation cannot occur until you’ve gone through the manual process of onboarding first. This helps to reveal any kinks or hiccups in the process. By doing it manually, you’ll understand what you can and cannot automate.

Once you’ve found the chinks in your armor and are able to correct them, you can begin to move to more automated onboarding, being sure to carefully consider how much of the process can be automated for your particular service and customer base.

Two simple ways we use to automate onboarding are through automatic guided tour pop-ups and strategically deployed NPS surveys at critical moments in the customer journey. The first is guided tours. Guided tours automatically pop up inside the software to assist in the onboarding process, pointing out new features or tasks and helping orient customers to what’s most important to them. We have found that guided tours reduce customer service calls by 80% because they walk user through various tasks and teaches them to use new features as they deploy.

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Another way to automate onboarding is through in-app NPS surveys, which allow you to receive ratings on each part of the journey–from the first user experience to feature health. These ratings help your team understand what’s working and what isn’t, how to improve, and also lets you know which customers are your biggest fans or greatest detractors. While most NPS surveys are delivered via email, we’ve seen a dramatic increase in response rate with in-app surveys. (Read more about how UserIQ helped MedReps improve survey completion by 70% in 10 days.)

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Invest in Customer Success

Happy, engaged customers don’t churn, and Jason Lemkin, Venture Capitalist and Trusted Advisor at SaaStr, points out that they are your “#1 single best source of referrals, case studies, upgrades, PR, more customers.” They are your champions. Continuing to maintain a human touch is the best way to keep customers happy, especially with first time buyers and initial customers. They can become the raving advocates or dreaded detractors of your product.

Lemkin also notes that happy customers are also more likely to go beyond first order into second orders, third, fourth, etc. and more likely to upgrade their service as they expand their knowledge of your product. That’s why it’s crucial to invest in a customer success manager: to make sure customers reach defined success milestones. By understanding your customer’s particular needs and what success with your product looks like for them, you can help them reach customer-centric milestones that help them achieve exactly what they need from your service.  

Breaking down customer success into specific goals helps your team always have the next goal in mind. Maintaining this “success milestone” way of thinking past the onboarding phase, Murphy says, “will allow you to surface upsell/cross-sell offers, as well as advocacy requests, at the perfect time so you’re more likely to get a positive result.”

These four strategies are integral to increasing the likelihood of success for your SaaS startup because they provide focus in the noisiest of places. If you can clearly visualize your customer base, develop a sensible price point, and ultimately make your customers happy and engaged, you are well on your way to success.